Exclusive: First Look at Amazon Travel’s New Hotel Contract

Dennis Schaal, Skift

- Nov 28, 2014 7:00 am

Skift Take

Amazon is meeting with hotels and hotel middlemen to ramp up its hotel supply, but is taking a deliberate approach and is currently conducting A/B testing of its new hotel-shopping experience. But, this is obviously just the opening shot.

— Dennis Schaal

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Skift exclusively obtained a copy of the new Amazon Travel contract with hotels and learned new details about the online retail giant’s strategy, implementation, and meetings with suppliers.

Under the terms of the Amazon Local Travel Booking Program contract, Amazon would collect the payment from the traveler at the time of the hotel booking, take a 15% “marketing fee,” and compensate the hotel in two electronic payments, one for 70% and the other for 30% of the merchant payment. In some cases, Amazon Travel would invoice the hotel for Amazon’s commission.

The eight-page contract’s fine print states Amazon would wire the payments in two installments to the hotels on the next business day after the 5th and 20th of each month.

In an indication of some of the marketing power that Amazon might exert to grow its ambitious and newly expanded hotel program, the hotels would agree to accept Amazon Local vouchers from guests whether they be print vouchers, “in digital form on a mobile device at your location” or a redemption code.

“If the price of your products and services is $200 and a purchaser buying your products and services pays $150 in cash and applies a $50 Amazon Local Discount, you will receive your merchant payment as if the purchaser had paid all $200 in cash,” the Amazon Travel contract states.

Amazon Local currently operates a very limited and wholesale-like hotel program, where travelers can get steeply discounted rooms at hotels, B&Bs and guest houses for discounts such as 52% off at The Lodge at Sedona in Sedona, Arizona, for $129 per night.

At least as early as September, Amazon Local sales representatives began approaching hoteliers about the launch of a new travel-shopping experience on Amazon.com that would enable hoteliers to list their property at published rates and not just sporadically at rock-bottom discounts when they desperately need to drive occupancy.

The new travel program would enable Amazon to partner with hotels for a longer and extended period and provide a wider selection of hotel choices and travel packages for Amazon’s customers, according to emails from Amazon Local sales staff.

The hotels, which could set their own rates and availability calendars through the Amazon Local Business Portal, could discount rooms when it makes sense and offer full-price inventory during peak periods to “a large qualified audience,” the Amazon sales pitch states.

Amazon is On-Boarding Rooms and A/B Testing

As Skift reported November 20, the expanded Amazon hotel program would kick off around January 1 and focus on a curated selection of hotels within driving distance of New York City, Los Angeles, and Seattle. There would be plenty of editorial content about the destinations and activities as part of the new hotel offering.

Skift has learned that Amazon began loading hotel inventory into the new channel this month and has been A/B testing the product.

“They are going about it in a cautious and constructive fashion,” says one person familiar with the program’s progress. “Amazon has a distinct interest in making this work and doing this right.”

Amazon is considering personalizing its expanded hotel program by region so only certain Amazon customers would see the hotel offerings within the Seattle drive market and others would only see the hotel choices within a few hours drive from Los Angeles, for example.

Meeting With Hotel Suppliers

Amazon has been meeting with hotels to entice them to participate in Amazon’s new hotel channel, and Patty Hagar, business development manager at Amazon Local, took meetings with prospects at the Phocuswright conference in Los Angeles nearly two weeks ago, Skift has learned.

Amazon, which is notoriously tight-lipped about pending initiatives, hasn’t responded to multiple requests for comment.

In addition, Amazon has been telling some hoteliers that launch partners would pay Amazon a 15% commission while hotels that come on board later would have to pay 20%. All of this is subject to negotiation and could vary by property.

Amazon representatives have spoken of taking the new-shopping experience international, beyond U.S. borders, but details about rollouts in other countries haven’t been forthcoming.

Rate Parity

The new Amazon Local Travel Booking Program contract has the expected provisions requiring hotels to furnish Amazon with their best available rates that “are made available through your own distribution channels or any other distributor or channel and the same dates of availability for such rooms.”

There is no specific mention in the new contract about Amazon potentially making special offers to its huge base of Amazon Prime members, but that would be an alluring possibility.

Hoteliers who encourage guests who booked a stay through Amazon to cancel the booking and reserve a room directly from the hotel would be subject to an additional 10% marketing fee — above the contracted 15% or 20% — per booking, the contract states.

Contracted hotels must give Amazon at least 45 days’ written notice to terminate the contract.

Competitors Chime In

The online travel and hotel industry around the world has been abuzz with the news that Amazon is going to make a bigger push into hotel and travel package bookings and the challenges that Amazon’s entry may present.

In that regard, Ctrip CEO James Liang told financial analysts November 25 that he wouldn’t be surprised to see Amazon enter the Chinese market one day, adding that Amazon rival Alibaba has revamped its own travel service as Alitrip.

“It’s a big business,” Khosrowshahi said. “This is a trillion dollar global industy. It’s a really attractive industry. It’s always been competitive. So we welcome Amazon to the party, so to speak. It’s a business that’s been growing really, really well so it is no wonder other companies are looking at it.”

Asked whether there were any aspects of the hotel business that Amazon would be locked-out of, Khosrowshahi said:

“I don’t think that there is any absolute lock-up factor because this is just too big a business, but we do have over 300,000 hotels now in our system on a global basis. It is going to take a lot of catching up to do for any global player to get to the size and scale that we have on a global basis. So we are really confident of our prospects going forward.”

Amazon appears to be taking a deliberate approach to its new hotel business, but this would only be an opening shot. The retail giant is obviously looking at ways to ramp up its supply of hotels beyond direct relationships with individual properties.

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